ATP, Denmark’s biggest pension fund, announced its bonus potential had swelled to the highest-ever level of DKK172bn (€23bn) at the end of June, as a result of the 17.9% first-half return generated from its absolute-return portfolio – but it also warned such gains could not be expected to continue.

Its interim report released today showed ATP’s net assets fell to DKK925.0bn by the end of June from DKK959.8bn at the end of 2020.

Within this total, the hedging portfolio covering guaranteed pensions shrank to DKK753.2bn from DKK813.6bn while the investment portfolio – which consists of the bonus potential – swelled to DKK171.7bn from DKK146.2bn.

The main reason for the big fall in the value of guaranteed pensions was the rise in interest rates during the six-month period, according to the report.

However, the market value of the investment portfolio – which the pension fund leverages by borrowing from the hedging portfolio – rose to DKK423.2bn at the end of June, from DKK390.8bn at the end of last year.

ATP said the largest positive contribution to the investment portfolio return came from listed and private equity and from inflation-related instruments, while government and mortgage bonds had made negative returns.

Bo Foged, CEO of ATP, said: “The way we have structured our portfolio with a great deal of risk diversification, strict risk management and active risk taking has once again proven its worth.

“I am very satisfied that we have stayed true to our concept and once again provided record results from our investments,” he said.

In an interview with IPE, Foged said that since the bonus rate had risen to 22.8%, ATP’s board would decide later this year whether to distribute a bonus to ATP scheme members.

The last time ATP granted a general bonus was 2017.

Regarding the investment outlook for the remainder of this year, ATP said in its interim report that financial markets were expected to continue being affected by uncertainty about how the coronavirus pandemic developed.

Bo Foged

Bo Foged, ATP

“It cannot be expected that the financial markets will continue growing and provide the same high returns seen in H1,” the pension fund said.

Foged told IPE inflation had been a big topic during the first half of the year.

“We still believe it’s temporary and inflation will go down probably late 2022 early 2023 and that’s at least our guess at the moment.

“But it’s important for you to remember we don’t base our investment strategy on macro outlooks so to speak. We use it to adjust our risk level, but we still run this all-weather portfolio,” the CEO said.

Asked how work was going on the new business model ATP is planning – which was approved by parliament earlier this year – Foged said: “The plan is right now that we will launch the new product portfolio, where an additional 20% of contributions will bear a market return on the 1st January 2022, and we will make adjustments to the hedging portfolio at the beginning of January 2023.

“Things are progressing accordingly,” he said.

“Now we’re working internally we have a big project where we’re working on how to implement this.

“Of course we’re thinking through how it will affect our value chain, and which parts it will affect, and we’re currently analysing that and trying to come up with what approach we want to use for that.

“So it’s a scoping change now, but we will be ready for 1 January,” Foged said.

The new business model will allow ATP, inter alia, to direct an extra fifth of new contributions to a wide range of assets rather than investing that money in the bonds-and-swaps hedging portfolio it does now.

While currently, 80% of each contribution is directed towards the hedging portfolio to back guarantees, this will be reduced to 60% in future.

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